DETROIT – At the urging of Detroit Mayor Mike Duggan, and with organizing support from the Obama Administration’s Detroit Federal Working Group, local banks, foundations and nonprofits have joined forces to make Detroit home-buying easier. The result – Detroit Home Mortgage – was unveiled today: a new mortgage program to help solve Detroit’s appraisal gap problem.
“This is a game-changer for Detroit,” said Duggan “We are confident that Detroit Home Mortgage will increase homeownership in the city of Detroit. This initiative is critical to rebuilding Detroit’s neighborhoods. With an opportunity to get a home mortgage, qualifying homeowners and homebuyers have a real opportunity to buy and renovate a house in the city and make it a home.”
Banks will now be able to lend qualified homebuyers the full amount needed to purchase a renovated home, or to buy and rehabilitate homes anywhere in the city of Detroit, added Duggan.
Previously, federal lending guidelines did not clearly allow banks to loan borrowers enough money to cover necessary repairs because the loan amount was limited to the low, appraised value of a house. Many potential homebuyers have good credit scores and stable incomes, but could not get a large enough mortgage because the appraiser could not find a similar home nearby with a comparable sales price. Houses across Detroit remain inexpensive to purchase relative to homes just outside the city limits, but the lack of financing forced many families either to pay cash or to rent instead of building equity and investing in their futures. Some homebuyers use expensive credit cards to pay for renovations, or do the renovations piecemeal over several years.
With Detroit Home Mortgage, qualifying borrowers receive a first mortgage for the appraised value of their house (less their 3.5 percent down payment), and a second mortgage up to $75,000 to fill the gap between the appraised value and the sale price and/or the cost of renovations. The program aims to increase homeownership, property values and reinvestment in any Detroit neighborhood where the appraisal gap exists.
The collaboration of Huntington Bank, Flagstar Bank, Talmer Bank and Trust, FirstMerit Bank, Liberty Bank, the Ford Foundation, the Kresge Foundation, and the Michigan State Housing Development Authority was spurred into action by two days of visionary discussions at the Clinton Global Initiative (CGI) America meeting last summer, Duggan explained.
“This program would not have been possible without the support of our generous investors, including the participating banks, the Ford Foundation, the Kresge Foundation and the Michigan State Housing Development Authority,” said Frank Altman, president and CEO of the Community Reinvestment Fund, USA, which will administer the innovative mortgage program.
“This is a creative solution to revitalize Detroit’s neighborhoods,” said Steve Steinour, chairman, president and CEO of Huntington Bank. “By partnering with the city, local banks are joining together to offer loans that resolve the challenge of making homes livable by funding both purchase and necessary repairs, without the problem of financing exceeding the home’s worth. Our regulators, including the OCC, are also playing an important role ensuring that this type of credit is available to Detroit homebuyers. We at Huntington and our bank peers are eager to help start the ball rolling to meet pent-up buyer demand placing viable vacant homes back into the hands of responsible homeowners.”
“Talmer Bank recognizes that neighborhoods come in many shapes and forms and that Detroiters deserve a fair shot at buying and reinvesting in a home,” said Gary Torgow, chairman of Talmer Bancorp. “As we worked on this concept, we recognized the urgency to pool resources to come up with a new approach. I believe Detroit Home Mortgage can accelerate the City’s renaissance because it gives Detroiters the financing they have long needed to rebuild our communities.”
“Flagstar strongly supports Detroit Home Mortgage because it is has the capacity to restart healthy mortgage lending across the city,” said Sandro DiNello, CEO of Flagstar Bank. “It’s highly unusual for this many banks to coordinate and collaborate on a single initiative. Flagstar will do everything it can to support the program’s success.”
“The Kresge Foundation is proud to be the ‘glue’ that helped bring this innovative financing initiative together,” noted Rip Rapson, president and CEO of the Kresge Foundation. “We looked for several years for a mortgage initiative with enough scale to impact mortgage lending citywide. We believe Detroit Home Mortgage has that potential.”
All participating banks will offer Detroit Home Mortgages at the same low interest rates with no bank fees. Like all loans, Detroit Home Mortgages must be repaid. However, if a borrower suffers an extreme hardship beyond their control, such as loss of job, and the homeowner is forced to sell the home, the Kresge Foundation will provide financial support to help borrowers repay the second mortgage.
Detroit Home Mortgage borrowers must complete classes in homebuyer education and the financial risks involved in borrowing more than the appraised value of a home.
“We will provide education to qualifying borrowers who would like to buy and renovate a home in Detroit,” said Hector Hernandez, executive director of Southwest Economic Solutions, a homebuyer counseling agency. “Detroit Home Mortgage is for borrowers who want a long-term investment in Detroit’s future and their future.”
Southwest Economic Solutions is one of several counseling agencies that will offer Detroit Home Mortgage education classes, including U-SNAP-BAC, National Faith Homebuyers, Central Detroit Christian, and other HUD- or MSHDA-approved agencies.
“The local real estate community knows how challenging it is to help buyers get the financing they need for a house in Detroit,” said Kamal Cheeks, president of the Detroit Association of Realtors. “Detroit Home Mortgage will give those qualified buyers a chance they haven’t had before – and that’s good for all of us.”
Mayor Duggan noted the role of CGI and the Obama Administration’s Detroit Federal Working Group in convening the private sector, philanthropy and government. The Working Group includes dedicated staff from the White House Office of Management and Budget, the Department of Labor, the Environmental Protection Agency and the State Department. “I credit the Obama Administration with convening the parties, generating new ideas, and supporting the effort to bring this resource to Detroit.”
Those interested in applying for a Detroit Home Mortgage can learn more at http://detroithomemortgage.org/#faq, or by visiting one of the initiative’s participating banks.